Market Research Firms Help Integrators Target Opportunities

Market Research Firms Help Integrators Target Opportunities

Ray Bjorklund

Gena Wade

Ask executives at American Management Systems Inc. to explain why they were so willing to develop and market an e-procurement solution to state and local governments and they'll tell you that it was the solid data and compelling arguments from analysts at a few select market research companies that swayed them.

Gena Wade, AMS' director of marketing services, said the company studied briefs on e-government, consulted analysts and tapped into opportunity databases of leading research companies that cover the state and local government information technology market, such as Federal Sources Inc., Gartner Dataquest, Input Inc. and others.

Market research confirmed and validated Fairfax, Va.-based AMS' commitment to Buysense, the company's e-procurement solution, she said.

"The analysts said that e-procurement was the leading application for governments to enter the e-government space," Wade said. The research also showed that this was the best path to savings for AMS' government customers, she said.

Market data generated by the research companies nourishes the business plans of AMS and other technology companies that serve the state and local government IT market. Small and mid-size tech companies use the data to zero in on niche opportunities, and integrators use it to adjust their business plans to capitalize on emerging trends.

At first glance, the numbers for total spending or spending across agencies may not mean much to those unfamiliar with the intricacies of the state and local market. However, the data and forecasts are valuable tools for the companies that rely on the marketplace to generate a substantial portion of their annual revenue.

At KPMG Consulting Inc., for example, the information helps executives see where state and local governments will be spending money five years from now. "We're not looking so much at the numbers as the trends," said Ron Saluzzo, senior vice president with the McLean, Va., company.

The state and local government market is one of the largest and most decentralized IT markets in the United States. It consists of all 50 states, 19,000 municipalities and 3,200 counties. Washington Technology spoke to chief analysts at Gartner Dataquest, Federal Sources and Input to learn what methodologies they use and what accounts for variations in their estimates.

It is "ten times harder" to analyze the state and local market than the federal market because, unlike the federal government, there is no requirement for state and local governments to provide consistent reports of their spending, said Ray Bjorklund, vice president of consulting services, Federal Sources Inc., McLean, Va.

Bjorklund said that Federal Sources starts putting estimates together by looking at lines for IT spending in state budgets and the funding for major new IT initiatives. Federal Sources then checks to make sure that those numbers correlate to the size of the state or local government itself.

When Federal Sources notices gaps or inconsistencies in the information reported by the states, it reviews past contract awards and other information to try to account for them, Bjorklund said.

"We use [past awards] as a sanity check," he said.

Federal Sources estimates that the overall spending for IT hardware, software and services in the state and local market will grow at a rate "greater than 5 percent in the next couple of years" from $38.8 billion in fiscal 2001 to $45.3 billion in fiscal 2004, he said.

Forecasting at Gartner Dataquest is based primarily on interviews with managers of information systems across eight major agency segments within state government, said Rishi Sood, a principal analyst with the Stamford, Conn., company. Sood is based in Mountain View, Calif.

The segments isolated for analysis by Gartner Dataquest are administration and finance, transportation, public safety, human services, health, criminal justice, natural resources and public works.

"The majority of our model is built from government interviews," Sood said.

Gartner Dataquest gathers information from about 750 agencies each year through interviews with management information system directors, chief information officers and business line officials within the 50 states and top 100 cities and counties, he said. The firm's baseline research comes from about 250 interviews and its custom research is based on about 500 interviews. Baseline is ongoing research conducted throughout the year, while custom research is done for specific clients.

Once information on IT demand is gathered, the analysts at Gartner Dataquest compare it with supply-side information, Sood said.

Gartner Dataquest also reviews secondary research compiled by organizations such as the National Association of State Chief Information Officers, National Association of Counties, and the National League of Cities.

In addition to standard market forecasts, such as budget component spending and service line spending, Gartner Dataquest also provides solution-level forecasts for solutions such as integrated tax systems, statewide automated child welfare integrated services, and other agency-specific solutions, Sood said.

Gartner Dataquest estimates that the overall spending for IT in the state and local market will grow at a rate of 7 percent annually from $45.62 billion in fiscal 2001 to $52.23 billion in 2003, said Sood.

Input Inc. of Chantilly, Va., draws data from a sampling of agency IT budgets, IT vendor annual reports and related information "to help paint the broad picture" of IT spending in the state and local government market, said Kevin Plexico, Input's executive vice president.

Plexico said Input also looks at smaller, regional and local governments through data such as number of employees working for the government and the population of an area or region serviced by the government to arrive at reasonable estimates for IT expenditures of those kinds of organizations.

In June 2001 Input launched a new state and local database program ? similar to the company's existing federal database program ? that identifies, details and tracks state and local IT opportunities from initial need to final contract award.

Input estimates that the state and local IT market for software and services will grow at a rate of 13 percent annually from $22.8 billion in fiscal 2001 to $37.5 billion in 2005. Unlike Federal Sources and Gartner Dataquest, Input's estimate of the average annual growth rate for IT does not include hardware.

The spending estimates for the total value or key segments of the state and local IT market given by different research firms may not be exactly the same for a couple of reasons, Plexico said. The firms might use different methodologies for their forecasts. In addition, the firms may have different definitions for the components that are used in their forecasts.

Bjorklund agreed that the final forecasts depend on which components are used to define the market. He said that forecasting is complicated by the fact that so much of IT spending these days is cast under services or solutions, making it difficult to break out the spending.

Federal Sources would rather underestimate the market than overestimate it, Bjorklund said. "We think our numbers are relatively conservative."

Bjorklund said that companies occasionally want big numbers to support their business plans, but research firms do them a disservice by putting out overly optimistic predictions about e-government opportunities.

"You read about some [market research] firms that have put out some pretty remarkable predictions about the Internet-driven economy, and are eating crow as a result," he said. "Sometimes you can get caught up in the hype and it affects your view of the market."

About the Author

William Welsh is a freelance writer covering IT and defense technology.

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